News By/Courtesy: Nikshetaa Jain | 21 May 2020 12:44pm IST

HIGHLIGHTS

  • Need for Reformation of the Model BIT
  • Definition of Investment
  • Limitation on the scope of ISDS

In 2011, the case of White Industries Ltd. v Republic of India promoted a dramatic shift in the country’s approach to investment treaties. After the White industries case, many foreign corporations issued a notice of investment arbitration, specifically Investor-State Dispute Settlement (ISDS) against India. These numbers of cases led to the review of the Bilateral Investment Treaty (BIT) in India. Thus, the White Industries case acted as a catalyst for the government to reform the BIT policy of the country. In 2016, India published its Model BIT which tries to provide appropriate protection to foreign investors in India while maintaining the government’s regulatory rights.

In the Model BIT 2016, investment has been defined in terms of an enterprise. The features of this definition are:- i) an enterprise which is constituted in good faith; and ii) the assets of such an enterprise has characteristics of an investment. This definition is narrow when compared with the asset-based definition of investment in the 2003 Model. By providing a narrow definition, the 2016 Model BIT brings a balance between investment treaties and the regulator powers of the State.

In most of the cases, the Most Favoured Nation clause allowed the investors to pick the favorable provisions from other BITs without being bound to less favorable conditions. The MFN clause has been omitted in the 2016 Model BIT. This is a direct move with the White Industries case, wherein White Industries Australia Ltd. invoked the MFN clause from the India Australia BIT to benefit from the more favorable investor rights in the India Kuwait BIT. The exclusion of MFN aims to prevent cases of treaty shopping.

In the 2016 Model, India has retained the ISDS mechanism, but its scope has been limited. A foreign investor is first required to exhaust local remedies for five years before commencing arbitration proceedings against India. The rule of ‘exhaustion of local remedies’ is a customary international law. The requirement to exhaust local remedies would reduce the scope of ISDS claim being brought against India. However, disadvantages of this provision are the slow disposal rate of cases and incompetency of the courts in India.

There are various other limitations to the scope of ISDS. Firstly, only disputes arising out of Chapter II of the Model BIT 2016 would be covered. Secondly, disputes arising out of alleged breach of contract between a host state and an investor are excluded. Thirdly, all disputes regarding investments that are held to be illegal are to be excluded.

Section Editor: Pushpit Singh | 21 May 2020 18:41pm IST


Tags : # India Model BIT 2016

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